Ground Rent Cap Announcement Expected in England and Wales

The government is set to announce a cap on ground rents for leaseholders in England and Wales on the morning of October 3, 2023. This move follows a commitment made in the Labour Party’s 2024 election manifesto, which aims to address “unregulated and unaffordable ground rent charges.” However, there are indications that the government may reconsider this cap due to concerns about its potential impact on pension funds.

While the exact figure for the cap remains unconfirmed, campaigners believe it is likely to be set at £250 per year. Earlier this month, former Housing Secretary Angela Rayner urged the government to adhere to its manifesto promise regarding ground rents. Currently, there are approximately five million leasehold homes in England and Wales, where individuals hold the right to occupy properties through leases from freeholders.

Leasehold ownership is the standard arrangement for privately-owned flats, with the Land Registry estimating that 99% of flat sales in England during 2024 were leasehold. Ground rents were abolished for most new residential leasehold properties in England and Wales in 2022, but existing leasehold homes still incur these charges. The English Housing Survey reported that leasehold owner-occupiers paid a median annual ground rent of £120 in 2023/24.

Discussions within the government have revealed tensions, particularly between the Treasury and the housing department, regarding how a cap could affect pension funds that own freeholds. Current Housing Minister Matthew Pennycook, who previously expressed a preference for ground rents to effectively be capped at zero, faces pressure from various quarters. Last week, former minister Justin Madders warned that the Prime Minister could encounter a “mass rebellion” if the government retreats from its commitment to implement a ground rent cap.

Madders suggested that while a cap set at a nominal value, or “peppercorn,” would be ideal, he could accept a limit of £250 to mitigate potential legal challenges. In contrast, a spokesperson for the Residential Freehold Association has described capping ground rents as “an unprecedented and unjustified interference with existing property rights,” claiming it could undermine investor confidence in the UK housing market.

Voicing concerns about the implications of any backtracking, Harry Scoffin, founder of the Free Leaseholders campaign group, stated, “At the election, Labour promised to end the feudal leasehold system. If they backtrack on reducing ground rates to a peppercorn or zero financial value, they’re not ending the leasehold scam.”

As the announcement date approaches, stakeholders across the housing sector await clarity on the government’s position and potential legislative changes that could reshape the landscape for leaseholders in England and Wales.